NCERT Solution For Class 11 Business Studies Chapter 2 – Forms of Business Organisation

A broad variety of definitions and introduction to the topic are offered by NCERT Solutions for Class 11 Business Studies Forms of Business Organisation, which includes all the questions provided in the NCERT books business studies class 11.

Forms of business organization class 11Economics is a social science concerned with the production, distribution (allocation) and expenditure or utilization of goods and services. It is a study of how individuals, trades, governments and countries make choices on the distribution of resources in order to convince their needs and to try to determine how these categories should combine and coordinate efforts to achieve maximum output. Economic analysis generally advances through analytical processes, more like mathematical logic, where the inferences of distinct human pursuits are reflected in the “means-ends” substructure.

NCERT Solutions of the 11th Std Business Studies has been provided to ace up your preparation. Access and use the direct links available for Chapterwise Class 11 NCERT Solutions whenever you want. The detailed approach used to explain the NCERT Solutions of the 11th Std Business Studies makes it easy for you to understand the concepts behind them.

NCERT Solutions is said to be an extremely helpful book during the preparation of the CBSE Class 11 Business Studies Exams. This study material has deep knowledge, and the solutions collected by the subject matter wizards are not separate.

NCERT Solution For Class 11 Business Studies Chapter 2 – Forms of Business Organisation provides us with all-inclusive information on all concepts. As students would have to learn the basics about the subject of economics in class 11, this curriculum for class 11 is a comprehensive study material, which explains the concepts in a great way.

Short Questions

1. Compare the status of a minor in a Joint Hindu Family Business with that in a partnership firm.

According to Indian law, a person who is 18 years of age is called a minor. In a joint Hindu family, a minor becomes part of the family business on the basis of being born into the family. The minor enjoys the same ownership and rights over property and business as other family members. But, he has limited liability to his share in the property.In a partnership firm, a minor cannot become a partner mentioned by the Indian Partnership Act, 1932. But if all the partners of a firm give their consent, a minor can be included and can share the profits of the firm, but a minor does not need capital or contribution to bear any liability if it is by business. Is continuous. Minors are not considered partners. But, after the attainment of 18 years, he can continue the partnership or withdraw it.

2. If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain.

Registration is not mandatory in case of partnership, but it is better to register it as there are many negative points of not registering. Some points have been highlighted:1.      A partner of a registered firm cannot file a case against a third party, although other firms may take legal action against the firm even if it is not registered.2.      A non-registered firm cannot file a case against its partner or partners and a partner also cannot do so against the firm.3.      Claims against third parties cannot be enforced in a court of law.

3. State the important privileges available to a private company.

The following privileges are given by a private company:1. A private company can be started by 2 members, while a minimum of 7 persons are required to start a public company.2. Two directors are sufficient to operate in a private company whereas a minimum of 3 is required in a public company.3. A private company may commence business from the day of obtaining the certificate of incorporation. But, to start a business a public company has to get two certificates, certificate of commencement and certificate of incorporation.

4. How does a cooperative society exemplify democracy and secularism? Explain.

A cooperative society is managed by those who are elected by all members through voting. Each member has equal right to vote, irrespective of the capital invested by him. Thus, it functions as a democracy where all members are treated equally and all members are given equal rights. Also, there is no discrimination of members on the basis of their caste, religion or gender. All members are free to choose members of the managing committee that they feel are best represented. Therefore, it is a symbol of secularism.

5. What is meant by ‘partner by estoppel’? Explain.

Estoppel refers to the partner as the person who, through his actions, behavior or words, gives an impression to others that he is a partner of that particular firm. This type of partner is not a partner and is not liable to contribute any capital to the firm nor is it part of any profit or loss of the firm. But, the same person will be held liable for the debts that are owed to the firm. And as in the event of the firm having insufficient assets or funds, estoppel can be used to repay debt by selling the partner’s personal assets.

6. Briefly explain the following terms in brief.

(a) Perpetual succession

(b) Common seal

(c) Karta

(d) Artificial person

(a) Perpetual succession: Perpetual succession means that a company will continue to operate until it is dissolved according to the law. It also means that a company will not cease to operate in the event of death, bankruptcy or retirement of one or more of its members.

(b) Common seal: The general seal is the official signature of the company that can be used by its board members to sign all key documents. Since the company is an artificial establishment created by law, a common seal helps to authenticate documents that can be used as evidence in a court of law.

 (c) Karta: Karta is the head of a Hindu undivided family. The title of Karta is given to the eldest member of the family. He is the one who has the power to make the final decision in the family in terms of business. As the head of the family and business organization, the doer is granted unlimited liabilities and supreme decision-making power in the family.

 (d) Artificial person: A company or business entity is referred to as an artificial person, unlike a human being it cannot walk, sleep, breathe and eat food. However, it is bound by law as it is created as a legal entity. It can sue or sue other firms.

Long Questions

1. What do you understand by a sole proprietorship firm? Explain its merits and limitation?

A sole proprietorship firm is managed, owned, and controlled by a sole individual, also known as sole proprietorship. He makes all the profits and is responsible for all the losses of the business.The following are sole proprietary properties:1.      It is easy to setup a entrepreneurship proprietorship business as it requires very few legal formalities. Similarly, the closure of a sole proprietorship business is free from obstacles.2.      Decision making is quick because only one person is responsible for making the decision.3.      The owner is the one who reads all the profits and loses all that arises from the business.Sole Proprietorship Limits:1. The amount of capital invested in a business will be less as only one person is running the business.2. All the responsibilities of the business are managed by a person who can interrupt the business due to lack of expert knowledge3. Business is affected in cases of illness or death of owner. Therefore the stability is uncertain.

2. Why is partnership considered by some to be a relatively unpopular form of business ownership? Explain the merits and limitations of partnership.

Partnerships are considered an unpopular form of business ownership due to factors such as potential conflict between partners, limitation of resources, unlimited liabilities and lack of continuity in business.Some of the qualities of partnership are:1. Creating a partnership is easy because it involves an agreement between two or more partners which may be in oral or written format. Registration is not mandatory. Also, the partnership can be terminated at any time on the basis of mutual agreement between the partners. 2. Decision making involves the opinion of all partners. It helps in making a balanced decision in relation to business.3. Sharing of risks is between partners so a certain individual partner does not have to bear all the burdenLimitations of Partnership:1. All partners have unlimited liability in partnership. In case of bankruptcy, the personal property of the partners may be used.2. A firm has a limited number of partners so finance is limited.3. As the shared decision-making model is used. Everyone will have their own opinion and this can lead to confrontation.

3. Why is it important to choose an appropriate form of organisation? Discuss the factors that determine the choice of form of organisation.

There are different options or types of business to choose from and each business will consist of different requirements and risks, as well as the prospects for the development of the business will vary according to the type of organization. Thus it is necessary to choose the appropriate one.The following are the deciding factors:1. Nature of business: To start a business one needs to decide the type of business that he should start. E.g. A sole proprietorship is best if the business works directly with customer contact, while other business types are suitable where there is no or little customer.2. Cost: The initial cost of setting up a company is a factor that should be taken into consideration. If the budget is low then the only option is to start with sole proprietorship.3. Liability: Individuals starting a business should also think about the liability that comes with the business. There is a commercially unlimited liability such as sole proprietorships and partnerships and the need to vacate the debt by selling personal assets, while a company has limited liability that is based on its assets.4. Continuity: The loss of a partner or proprietor impacts business forms such as partnerships and sole proprietorships. Other forms such as cooperatives or companies are not affected by such factors. If the business is seeking permanency, then the company or cooperatives are at best bet.5. Control: Sole ownership is best if one wants sole control over the business, while a partnership or company structure is best if shared decision making is required.6. Managerial capability: If the business is large enough where many skilled professionals are required to maintain the business, then the company form of business is the best option.However, sole proprietorship is the best option if the business is limited and requires very little management.

4. Discuss the characteristics, merits and limitations of cooperative form of organisation. Also describe briefly different types of cooperative societies.

A cooperative is an organization formed by a voluntary association of individuals who join together to protect and promote their common interests.Features:1. It is mandatory to register the cooperative society under the Cooperative Societies Act, 1912. On completion of registration it is given the status of a separate legal entity.2. It follows a democratic form of organization and a managing committee manages the operations and this committee is selected by members on the basis of one vote per member. Quality:1. Simple setup as per Cooperative Societies Act, 1912. It is easy to create as a minimum of 10 members. All must be adults.2. A cooperative is a continuous form of business organization unaffected by the insanity, spunkiness or death of its members.Limitations:1. To follow the rules and regulations laid down by the cooperative departments of the state.2. Audit report of accounts to be submitted to the government 3. Management includes inexperienced people who lack efficiency and may not be well equipped to manage the organizationTypes of cooperatives1. Consumer Cooperative: These are created to provide consumer goods at reasonable rates to its members.2. Manufacturer Co-operative: The objective is to procure materials and machinery and supply them to members at low prices.3. Farmer Cooperatives: A consortium of small farmers who join together to increase their productivity and earning potential4. Housing Cooperative: They are in the direction of providing affordable housing solutions to their members.5. Marketing Cooperative: These cooperatives are formed by farmers, small producers and artisans to promote their services in the market.6. Credit Cooperative: These cooperative societies provide credit to their members at low interest rate.

5. Distinguish between a Joint Hindu family business and partnership.

6. Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organisation? Why?

The reason behind choosing sole proprietorship as a business is to offer many benefits despite limitations in areas of size and resources. The benefits are mentioned below:1.      It is very easy to set up a sole proprietorship business as very few legal formalities are required. Similarly, closing the business is also hassle free.2.      As the sole decision maker, the sole owner has complete control over the business, making decisions quicker.3.      The sole proprietor enjoys all the profits earned by the business and has to bear all the losses.4.      As a sole proprietor the only person highly flexible in operations is managing the operation.

Application Questions

1. In which form of organisation is a trade agreement made by one owner binding on the others? Give reasons to support your answer.

As a business partnership, a trade agreement entered into by one owner becomes legally binding for other partners. This is due to the fact that every partner is by the rule of both an agent and a principal. Therefore each partner acts as an agent of the firm and binds all the other partners and each partner is also the head of the firm, so he is bound by the action of the other partners

2. The business assets of an organisation amount to Rs. 50,000 but the debts that remain unpaid are Rs. 80,000. What course of action can the creditors take if
   (a) The organisation is a sole proprietorship firm
   (b) The organisation is a partnership firm with Anthony and Akbar as partners. Which of the two partners can the creditors approach for repayment of debt? Explain giving reasons

(A) Sole proprietor has unlimited liability in case of sole proprietorship. In the case of loan repayment, creditors can claim the personal property of the owner.(B) Creditors can contact both partners and are required to pay according to their share in the partnership. If one partner goes bankrupt, the other partner can be contacted to repay the debt.

3. Kiran is a sole proprietor. Over the past decade, her business has grown from operating a neighbourhood corner shop selling accessories such as artificial jewellery, bags, hair clips and nail art to a retail chain with three branches in the city. Although she looks after the varied functions in all the branches, she is wondering whether she should form a company to better manage the business. She also has plans to open branches countrywide.
   (a) Explain two benefits of remaining a sole proprietor
   (b) Explain two benefits of converting to a joint stock company
   (c) What role will her decision to go nationwide play in her choice of form of the organisation?
   (d) What legal formalities will she have to undergo to operate business as a company?

(A) Benefits are: 1. All profits of the business are owned by a single owner2. Independent decision can be taken in case of sole proprietorship (b) Following are the two benefits of converting a joint stock company.Me. Capital can be expanded by issuing new shares. ii. Owners’ liability is limited only to the amount they invest as capital.

(c) A joint stock company will best serve her interest if the plan is to go nationwide.

(d) The operation of a joint stock company requires completion of the following formalities:

1. Company promotion
2. Creating necessary documents like Memorandum of Association (MOA), Association of Associations (AOA) and mandatory agreements and declarations.
3. Obtaining Certificate of Incorporation
4. Obtaining certificate to start a business

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